Bankruptcy's Role in the Growing Dilemma of Self-bonding in the Coal Industry

• Citation: Vol. 34 No. 1
• Publication year: 2017

Bankruptcy's Role in the Growing Dilemma of Self-Bonding in the Coal Industry

Jeanna Heard

BANKRUPTCY'S ROLE IN THE GROWING DILEMMA OF SELF-BONDING IN THE COAL INDUSTRY

Abstract

The coal industry is experiencing increasing market challenges and many of our nation's largest coal producers are filing for bankruptcy. In the wake of insolvency, coal companies are leaving behind abandoned mines with no one to mitigate the damage. There are long-standing regulations mandating coal companies post bonds for land restoration after mining operations are complete. Coal companies can use financial liquidity to satisfy these bonds, known as self-bonding. Yet, companies are using the fiscal strength of subsidiaries instead of their own accounts to self-bond. Ultimately, a company can appear financially healthy enough to qualify for reclamation bonds, but not have enough cash to cover full clean-up of mining sites. Bankruptcy highlights the insufficiency of such reclamation procedures and the supporting bonding process.

This Comment evaluates several ways to cope with the self-bonding problem under the existing bankruptcy framework, including the existing requirements of the good faith and feasibility requirements, and proposes a carved out exception within the Bankruptcy Code disallowing prior coal bankruptcy debtors from self-bonding. The carve-out offers the most effective solution at targeting only the misuse of bankruptcy while still allowing the institution to provide effective relief to innocent debtors. The proposed carve-out states: No coal company seeking relief under or arising from this statute shall: (a) include self-bonding within its reorganization plan, nor (b) qualify for self-bonding in the future under any provision of 30 C.F.R. § 800.23.

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INTRODUCTION

Coal companies are experiencing various market pressures pushing them toward bankruptcy. Growing insolvency of the mining industry leaves environmental degradation for the government to clean-up. While the current safeguards are meant to protect land previously mined for coal from being abandoned, there remains a loophole. Applicable regulations require an active coal mining site to be able to pay to remediate the land once mining activities have ceased. There are various ways a coal company can post these mandatory "reclamation bonds." One way, known as self-bonding, allows a company to use its financial strength to show the company does not need to set aside specific funds because it is solvent enough to foot the bill. But coal companies can escape responsibility by falsely reporting the financial ability to pay for the clean-up, and later seek to be absolved of that obligation through bankruptcy.

There are various ways in which bankruptcy can discourage self-bonding by a coal company currently or previously in bankruptcy. This Comment will explore potential remedies offered through bankruptcy procedures, either in the existing Code, an amended Code, or through court discretion. One recommendation is that a court could deny a reorganization plan that includes self-bonding under the reasoning that it does not satisfy all of the plan confirmation requirements.¹ Specifically, self-bonding does not satisfy the good faith and feasibility requirements of 11 U.S.C. § 1129(a)(3) and § 1129(a)(11).² The ideal solution will be a court-created, or Code-amended carve out that explicitly prohibits a previous debtor in bankruptcy to avail themselves of self-bonding again. The carve-out would prevent companies with a history of abusing the reclamation bonding scheme while allowing other companies with no such history to continue to self-bond responsibly. Alternatively, bankruptcy courts could suggest changes either in support of the Department of the Interior's notice and comment process, or for Congress to change the Surface Mining Control and Reclamation Act ("SMCRA") entirely.

I. Background

Coal played an integral role in the expansion and the success of the United States economy by powering transportation, electricity, and the Industrial

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Revolution.³ The coal industry gave many Americans employment in a time where the country needed it the most.⁴ Unfortunately, the negative effects of the industry on the environment and human health eventually became apparent.⁵ A statement given to the Committee on Natural Resources in 2013 recalled the physical destruction caused by coal mining:

During the mid 1970s, most counties in the Appalachian coal fields were dotted with hundreds of small surface mines . . . . From both the small and large operations I saw streams choked with sediment, and spoil and rocks dumped on the downslope in steep terrain. I witnessed the results of unpredictable blasting events and saw the exposed highwalls and abandoned entries that were left behind.⁶

A. The Harms of Coal Mining

The Environmental Protection Agency (EPA), charged with protecting human health and the environment, attributes the growing consequences of climate change to the greenhouse gas effect, primarily from emissions of carbon dioxide through the burning of fossil fuels.⁷ In fact, carbon dioxide (CO₂), a major byproduct of coal consumption, "is the primary greenhouse gas pollutant, accounting for nearly three-quarters of global greenhouse gas emissions and 84% of U.S. greenhouse gas emissions."⁸ The effects of climate change have become so severe that 2016 was the hottest year in recorded history, beating out 2015.⁹ This increase in temperature is also accompanied by

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changes in the weather and overall climate of Earth.¹⁰ According to the EPA, "many places have seen changes in rainfall, resulting in more floods, droughts, or intense rain, as well as more frequent and severe heat waves."¹¹ The Centers for Disease Control and Prevention (CDC) has also identified various health effects correlated with severe weather, air pollution, water quality degradation, extreme heat, food supply impacts and environmental degradation as a whole.¹²

In an effort to reduce CO₂ emissions and combat the effects of climate change, nations across the globe have signed the Paris Agreement.¹³ The United States is the only country to reject the treaty and maintain the status quo of emissions.¹⁴ But American coal is still in danger. While Washington debates climate change, global demand for coal is already declining.¹⁵ American coal companies optimistically relied on the increase in demand for coal by industrializing countries such as China and Australia.¹⁶ However, the line of growth in coal consumption is not quite the predicted straight line.¹⁷ In fact, coal demand for exports has not even remained constant; it has declined.¹⁸ As countries across the world become more aware of environmental degradation, they are demanding less coal use and increasing their own reliance on renewable energy sources instead.¹⁹ The United States is losing export

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business.²⁰ Recent data shows that in 2014, China not only used more crude oil and natural gas, but also used less coal.²¹

When it comes to the impact of coal mining, perhaps even more troubling are the diseases cited by the CDC that plague individuals who live and work in coal towns and inhale mine dust.²² These diseases include: pneumoconiosis, silicosis, bronchitis, emphysema, and Black Lung.²³ Combined, these diseases have led to thousands of deaths and left countless others with severely diminished qualities of life.²⁴ Even in light of the dangers, coal companies have not felt the need to mitigate the damage caused by their industry. The environment and its inhabitants continue to suffer due to coal mining even in an age of environmental consciousness and scientific awareness. One unfortunate consequence of the coal industry's negative externalities is the increase of ghost towns caused by rampant unemployment.

Consider the coal mining town of Lindytown, West Virginia. According to Sierra Club, Appalachian mountaintop-removal mines have destroyed an estimated 1.4 million acres of forested land, buried an estimated 2,000 miles of streams, poisoned drinking water, and wiped whole towns off the map.²⁵ Lindytown is on its way to being another statistic as it has experienced both the "boom" and "bust" of surface coal mining.²⁶ Lindytown is located in southwest West Virginia and was surrounded by mountains and forests, until coal mining began.²⁷ Residents initially thrived off of the introduced industry; families throughout the town had both employment and a purpose.²⁸ But the labor-intensive underground mining eventually transitioned to machine operated surface mining.²⁹ Residents were left unemployed while health and safety conditions continued to deteriorate due to daily blasting and visible coal dust.³⁰

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Instead of helping the community, the occupant coal company at the time, Massey Energy, chose to reduce its liability by simply buying out residents that had lived in Lindytown for generations.³¹ The large coal company began making offers in December 2008, and by the beginning of 2011, only one or two families remained in the entire town.³² The holdouts consist of a generation unwilling to leave their family homes, including Alzheimer's sufferer Quinnie Richmond and her son.³³ Yet none of the remaining residents blame the younger generation for getting out. They suggest, "[y]ou might as well take the money and get rid of your torment . . . after they destroyed our place."³⁴ Clearly, coal mining has immense economic and social externalities.

B. Self-Bonding and Bankruptcy

Lindytown is just one example within one region of coal mining. Lindytown's plight is an unfortunate paradigm found throughout Appalachia and coal mining towns across the nation. If the coal industry remains afloat in the face of such degradation, what protections are available to the remaining employees and residents of coal towns in the instance of coal company bankruptcy? Their only hope rests with decades old legislation. In 1977...